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Politics and Pipelines

Political problems, huge investments confront major oil discovery

by David Johnson

Oil drilling stations like the one above will transport newly discovered oil from the Caspian Sea. (Source: Arttoday.com)

Top Oil Reserves

Country

Oil Reserves(billions of barrels)

Saudi Arabia

261.5

Iraq

112.5

United Arab Emirates

97.8

Kuwait

96.5

Iran

89.7

Venezuela

72.6

Russia

48.6

Mexico

47.8

Libya

29.5

China

24.0

Nigeria

22.5

United States

21.0

While the discovery of significant new oil fields in the Caspian Sea near Kazakhstan is good news for a petroleum-thirsty world, getting that oil to international markets will require overcoming enormous obstacles since it must travel by pipeline through one of the most politically volatile areas of the world.

In May 2000, oil industry officials reported sizable oil deposits in an area known as East Kashagan, in the Caspian Sea off the Kazakhstan coast. Initial estimates indicate the oil field could be huge, containing as much as 50 billion barrels, but more likely 20 billion barrels, of crude oil. But even the 20 billion estimate would make the Kashagan discovery enormous, and increase known crude oil reserves in the world by about two percent.

By comparison, the United States has known reserves of 21 billion barrels, while the North Sea field contains about 16 billion barrels.

The discovery also catapults impoverished nation of Kazakhstan, formerly part of the Soviet Union, onto the list of potential major oil producers. Previously, it was estimated that Kazakhstan had reserves of between five and seven billion barrels of crude oil.

The Pipeline Problem

Because the Caspian Sea is landlocked, oil and natural gas must be transported by pipeline to a terminal on the open sea, where it would be pumped into tankers and shipped to customers.

Such projects also face huge obstacles. Long distances over often inhospitable mountain and desert terrain, prone to earthquakes, and vulnerable to attack, would make pipeline construction and operation more difficult.

But politics, not nature, poses the greatest hurdle.

Analysts say that all five countries bordering the Caspian—Iran, Turkmenistan, Kazakhstan, Russia, and Azerbaijan—must be satisfied in order for an oil production deal to last.

A Troubled Region

Possible pipelines face problems in every direction.

Iran: U.S. law forbids economic cooperation with Iran, making it off-limits for any American-sponsored pipelines. Plus, some observers have questioned how much Iran, a major oil producer itself, would want to help competing oil reach the market.

Azerbaijan: Although it is presently the largest oil producer in the Caspian and has reserves estimated at more than one billion barrels, American companies cannot provide economic or technological assistance to Azerbaijan as long as it maintains an embargo on neighboring Armenia. The embargo was imposed following the Armenian invasion of Azerbaijan's predominantly Armenian enclave of Nagorno Karabakh in the early 1990s. Although a cease-fire has been in effect since 1994, that dispute has yet to be resolved.

The Caucasus: There has been heavy fighting in recent years as Moscow has battled rebels in Chechnya, Dagestan, and North Ossetia. Georgia has fought secessionists in Abkhazia and South Ossetia.

Central Asia: While the civil war in Tajikistan officially ended in 1997, fighting between the government and rebels occasionally erupts. Uzbekistan has recently battled Islamic rebels based in neighboring Kyrgyzstan. Some fighting continues in Afghanistan, now largely controlled by the Islamic fundamentalist Taliban regime. There have been fears that continued instability in Afghanistan could spread into Pakistan or other nations.

Turkey: The government has apparently won its war on Kurdish separatists, at least for now. The potential for instability in southeastern Turkey remains as long as the Kurdish question remains unsettled.